Trading in a Car with a Lien

Many of our customers want to know if it’s possible to trade in a car with a lien listed on the title.

Paying Off a Lien

We recently received this question:

“I have a title loan on my old car, will I be qualified to pay off that title loan and get a new car?”

To answer this buyer’s question, it depends on a couple of things. The buyer's equity situation in the vehicle can change the trade-in process, but one thing is for sure: the lien must be removed before you can sell or trade-in the car.

A Trade-In with Equity

Having equity in a vehicle makes the trade-in process easier and quicker. In order to check how much equity you have, you can go to a site like Kelley Blue Book and search for your vehicle’s year, make, model, condition, and mileage to get an estimate of its actual value. Then, compare that value to your current loan balance. If the vehicle’s actual cash value is greater than the loan balance, you most likely have equity.

When you have equity in a vehicle that you trade-in, you can apply the full amount toward your new car, or apply some of it to a down payment and keep the rest. Regardless, a dealership will be willing to accept your trade-in and pay off your remaining loan balance with your old lender, removing the lien from the vehicle.

What Happens with Negative Equity

If you have negative equity, sometimes referred to as being under water, it means you owe more on the loan than the car's worth. This deficiency isn't going away, and either has to be paid out of pocket or rolled into the new loan. This makes the trade-in process more difficult, especially if you have bad credit. Borrowers with credit issues typically cannot roll over much, if any, negative equity into a new loan.

If you’re on the fence about trading in or selling a vehicle with negative equity, there are two other options to consider:

Postpone the purchase – Wait until the negative equity is reduced or eliminated, or you’re in a better financial position to buy a new vehicle.

Sell the car yourself – If you think pricing it above wholesale with a private party sale might cover all or most of the negative equity, you could try selling the car yourself.

Bottom Line

In order to trade in your vehicle, the title must be free and clear. Remember that equity is important during this process, so double check your finances and calculations.

If you’ve recently paid off a loan and are looking for your next vehicle, but bad credit has you down, let Auto Credit Express help. Our service can point you toward a local special finance dealer with the lending resources available to assist people in challenging credit situations. Fill out our no-obligation auto loan request form online to get started today.

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